By Jeff Barker, The Baltimore Sun
11:02 PM EDT, August 16, 2014
The Orioles' dispute with Major League Baseball over television rights fees casts the franchise in a familiar role as a challenger to the baseball establishment.
About a decade ago, the Orioles opposed the proposed relocation of the Montreal Expos to Washington, a city that had been exclusive Orioles television and marketing territory since 1972, when the Senators moved to Dallas and became the Texas Rangers. After bruising negotiations and the threat of litigation by the Baltimore team, baseball reached an agreement with the Orioles giving the club control of the regional television network it shares with the Nationals as compensation for the loss of territory.
While the deal was supposed to settle the matter, the Nationals bridled under the agreement and now seek to level the economic field by demanding more in television rights fees from the Mid-Atlantic Sports Network. As attorneys head to court Monday for an important hearing in the brewing case, the Orioles' demeanor in court documents resembles that of an unapologetic whistle-blower. The attorneys use words like "corrupted," "fraud" and "bias" to describe the baseball procedures it is challenging.
Lawyers for MASN argued in a New York court memorandum filed Wednesday that the process baseball employed to try to resolve the television dispute contained "pervasive conflicts of interest, intolerable self-dealing, and fraud."
Because the court declined Major League Baseball's request to seal the record, all of the charges and countercharges are available publicly.
"In general, the league and the teams despise having their differences aired in open court," said Rich Brand, an attorney and media rights expert who chairs the sports practice group at the firm Arent Fox. "No league would be happy about this stuff."
At issue is a June 30 decision of three club owners arbitrating the rights fee disagreement between the Nationals and MASN, which broadcasts both the Orioles' and Washington's games. The Orioles hold a majority stake in MASN, which says the decision would force it to distribute excessive rights fees to the Nationals, decimating the network's profit margin. That would leave the Orioles with less money as well.
Rights fees can pay for player salaries, provide funds for new facilities and, generally, be the difference, Brand said, "between a team doing very well or not so well."
In documents, the Nationals counter that the Orioles continue to benefit from the "immensely favorable terms" of the 2005 settlement agreement.
The Orioles own 85 percent of MASN, while the Nationals own 15 percent, a stake that is growing by a percentage point each year until it tops out at 33 percent. As a result, most MASN profits flow to the Orioles.
The Nationals, who receive about $40 million a year in annual rights fees, requested an increase to $118 million that they said represented fair market value, according to court documents. The arbitration panel would boost the fee — which is the same for both clubs — to about $60 million, court documents show.
Attorneys for MASN and the Orioles seem to be not only challenging the decision but also the authority of retiring Commissioner Bud Selig, who says the dispute should have remained internal.
"The MLB constitution says the owners put their trust in the commissioner and agree he is the person who has final authority to resolve any dispute among the owners," said Stephen F. Ross, a Pennsylvania State University professor who specializes in sports law. "The commissioner could say, '[Orioles owner] Peter Angelos, you are not acting in the best interests of baseball and I'm going to suspend you.' "
MASN argues that it has the right under federal arbitration law and the 2005 agreement to seek recourse outside the commissioner's office.
According to court records, Selig sought to convene an Aug. 6 hearing on possible sanctions, but lawyers for the Orioles and MASN said they would not attend, and the hearing was canceled.
The commissioner has said he is focused on reaching an amicable settlement. Selig and his aides have declined comment while the matter is litigated.
The case is unfolding in the New York Supreme Court for New York County, which issued a temporary restraining order Aug. 7, blocking baseball from imposing its decision and the Nationals from withdrawing TV rights from MASN. At Monday's hearing, the court will hear arguments on whether to make the injunction permanent.
Meanwhile, MASN filed an arbitration claim against Major League Baseball with the American Arbitration Association, seeking at least $800 million in damages for breach of contract if baseball's decision is enforced.
The Orioles argue in the arbitration claim that baseball did not use the proper methodology in determining the rights fee, according to documents filed in the New York court. The correct standard, the club's lawyers say, is a formula developed by Bortz Media & Sports Group, a Colorado consulting firm.
MASN has submitted an affidavit in which Bortz's managing director said the league committee "cherry-picked" data and that it "completely corrupts the established methodology" for determining telecast rights fees.
The Nationals said in a court filing that the committee "applied the exact methodology required by the parties' agreement, and MASN is not entitled to vacate or modify the award because MASN does not agree with how the [panel] applied the correct formula."
Documents filed by the Nationals last week hint at the franchise's prolonged dissatisfaction with the 2005 agreement that gave the Orioles the lion's share of MASN's profits in exchange for losing exclusive territory.
The agreement was "heavily lopsided," said Edward L. Cohen, a principal owner of the Nationals, in an affidavit filed last week.
"The Orioles have reaped the benefits of the bargain struck in the Telecast Agreement and related partnership agreement since it was signed," he said. "MASN paid both the Orioles and the Nationals rights fees that were tens of millions of dollars below market value from 2005–2011, leaving huge profit margins on its books."
But MASN countered that baseball's decision would swing the economics too far against the network and the Orioles. In documents, its attorneys constantly remind the court that the club once surrendered an area they say accounted for more than one-third of the Orioles' revenues.
In a memorandum last week, MASN attorneys also accused baseball of "rigging the [committee] proceeding to reach a pre-determined result."
It said that the same outside counsel — New York-based Proskauer Rose — represented the Nationals, Major League Baseball and the three teams whose owners made up the arbitration panel.
"MASN persistently objected, demanded more information, and even moved to disqualify the firm, only to be rebuffed at every turn," the attorneys wrote.
Because of revenue sharing, MASN said baseball stands to gain monetarily by encouraging higher local rights fees.
The court is expected to consider those conflict-of-interest arguments during Monday's hearing in Manhattan. Experts say the court and arbitration cases ultimately may be combined and heard solely by the arbitration association.
While each team has had to make accommodations sharing a territory, the Nationals and Orioles have long been publicly cordial.
"It was nice talking to you and will look forward to seeing you in the near future," said a 2011 letter from Orioles owner Angelos to Nationals owner Ted Lerner about future rights fees meetings. "All my best to Mrs. Lerner and your family," said the note, included as a court exhibit.
The dispute comes as media rights deals have become more generous in recent years, said Lee H. Berke, president of LHB Sports, Entertainment & Media, a consulting firm. It also comes as the Orioles and Nationals are both in first place in their divisions.
All major league teams want their share of growing potential revenue streams, Berke said.
"The problem here is paradoxically the success of MLB on television and live sports on television," he said. "It's a shame they are at one another."
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